The popular cryptocurrency and blockchain system known as Ethereum is based on the use of tokens, which can be bought, sold, or traded. In this case, "tokens" represent a diverse range of digital assets, such as vouchers, IOUs, or even real-world, tangible objects. In this way, tokens are essentially smart contracts that make use of the Ethereum blockchain.

Key Takeaways

  • The popular cryptocurrency and blockchain system known as Ethereum is based on the use of tokens, which can be bought, sold, or traded.
  • One of the most significant tokens is called ERC-20, which has emerged as the technical standard used for all smart contracts on the Ethereum blockchain for token implementation.
  • Because the ERC-20 standard remains relatively nascent, there will likely be bugs that need to be worked out, as Ethereum continues to develop.

ERC-20 Empowers Developers

One of the most significant tokens is known as ERC-20, which has emerged as the technical standard used for all smart contracts on the Ethereum blockchain for token implementation. As of April 16, 2019, more than 181,000 ERC-20-compatible tokens exist on Ethereum main network.

The ERC-20 commands vital importance, because it defines a common list of rules that all Ethereum tokens must adhere to. Consequently, this particular token empowers developers of all types to accurately predict how new tokens will function within the larger Ethereum system. This simplifies and eases developers' tasks, because they can proceed with their work, knowing that each and every new project won't need to be redone every time a new token is released, as long as the token follows the rules. Fortunately, so far the vast majority of token developers have fallen in line with ERC-20 rules, meaning that most of the tokens released through Ethereum initial coin offerings are ERC-20 compliant.

ERC-20 Specifies Six Functions

ERC-20 defines six different functions for the benefit of other tokens within the Ethereum system. These are generally basic functionality issues, including the method in which tokens are transferred and how users can access data regarding a particular token.

All together, this set of functions and signals ensures that Ethereum tokens of different types will uniformly perform in any place within the Ethereum system. As such, nearly all of the digital wallets which support the ether currency also support ERC-20-compliant tokens. But because the ERC-20 standard remains relatively nascent, there will likely be bugs that need to be ironed out, as Ethereum continues to mature. To cite an example of one such glitch: Ethereum tokens sent directly to a smart contract will lose money, because an error in protocol means that a token's contract cannot respond to an attempt to make a direct transfer, resulting in the "loss" of the money associated with that transfer.

According to CoinDesk, about $70,000 worth of tokens have already been lost for this reason. Nonetheless, today ERC-20 remains a crucial aspect of Ethereum, and is likely to continue wielding massive influence moving forward.